Tag: finance

Authored by Martin Armstrong via ArmstrongEconomics.com,

Politicians have totally and completely misunderstood the trends within the global economy and as a result, they are actually creating one of the worst economic debacles in history.

I have explained several times that the bulk of investment capital is tied up in two primary sectors – (1) government bonds and (2) real estate. Because of income taxes, real estate has offered a way to make money in capital gains without having to pay income taxes.

Money has looked to park in real estate around the world for many various different reasons as in Italy it was the escape from inheritance taxes as well as banks or in Vancouver to gain a foothold for residency fleeing Hong Kong. In Australia, there was the Super Annuation Fund which allowed people to use retirement funds for real estate.

People spend more when they believe that they have big profits in their home.

The recession of 2007-2010 was so bad, recording the worst of all declines since the Great Depression, all BECAUSE it undermined the real estate values. People then spent less because they viewed their home declined in value.

As taxes have been rising and the average home value collapsed, the velocity of money kept declining. Especially as real estate values declined and interest on savings accounts vanished hurting the elderly who saved money for retirement and discovered their savings were producing less income, the velocity of money just plummeted.

The velocity of money began to turn up finally in the USA ONLY when interest rates began to rise. The retired could suddenly begin to make something on the savings for once in a very long time. This is something the ECB still has not figured out in Europe as it has wiped out both the elderly savings along with pension funds.

Nonetheless, politicians have gone nuts imposing all sorts of regulations to outright making it a criminal act for a foreigner to buy property.

In New Zealand, the new government wanted to declare foreign investment just illegal and in Australia, they made it a criminal act for a foreigner to own property and not inform the government they were foreigners. Over in London, they imposed taxes on property which created a crash.

But, the USA targeted only New York and Miami requiring that title companies pierce corporate veils to discover who was really behind what.

They did not impose taxes only on foreigners nor did they outlaw foreign ownership of property. This is also why the high-end market recovered, just not the average home on the street.

What they are clueless about is this attack on the real estate market viewing foreign buyers as evil, is undermining real estate as a whole and that is what creates the worst economic decline in history.

This undermines the banking system that has used real estate as collateral for mortgages and it undermines consumer spending because people save more when their property declines.

The politicians are actually creating the worst possible scenario for the economy going forward.

Welcome to the new face of stupidity. They are so out there that it is like they are sitting on a branch of a tree and cutting the branch expecting the tree to fall. This is what they have done to real estate which makes even what Goldman Sachs did in 2007 child’s play.

Now add government borrowing which competes against the private sector and it only gets even more stupid.  Then we have brain-dead investors who actually think government debt is “quality” issued by idiots who have ZERO intentions of ever paying off their debt at any point in the future. Governments borrow year after year with no understanding what they are doing to the entire economy and how they are causing unemployment to rise with ever more taxes and more borrowing completing with the private sector on every level.

Then society elects people with absolutely ZERO business experience who in turn appoint academics who have wonderful theories that have never proven to have worked even once! And people wonder why I say they will never listen to prevent a crisis so we have no choice but wait for the Crash & Burn.

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With the midterm vote less than a week away, President Trump sat down for a wide-ranging interview with ABC’s Jonathan Karl to discuss some of the more pressing issues affecting the vote. In remarks that, at times, sounded like Trump was deliberately trying to trigger Democrats and journalists who have opposed his administration at every turn.

Early in the interview, Trump insisted that, if Democrats win control of the House and try to investigate his finances, he would cooperate because he has nothing to hide. “I’m an open book”, he said. But in one of the interview’s most memorable lines, Trump said that he “tries to tell the truth” when he can, while pointing out that ABC sometimes reports things about the Trump administration that aren’t necessarily truthful – a claim that went unchallenged by Karl.

DONALD TRUMP: Well, I try. I do try. I think you try too. You say things about me that aren’t necessarily correct. I do try, and I always want to tell the truth. When I can, I tell the truth. And sometimes it turns out to be where something happens that’s different or there’s a change, but I always like to be truthful.

Trump’s statement, which will elicited howls of indignation from journalists on twitter, comes on the heels of a Washington Post fact checker report alleging that Trump made more than 5,000 false or misleading claims during the first 601 days of his presidency. And the misleading statements have continued to this day, according to WaPo: “Since then, as Trump has ratcheted up his rhetoric in advance of the midterm elections, he has continued to mislead voters and invent facts.”

He, for instance, said a middle-class tax cut would be passed by Nov. 1, even though Congress wasn’t in session and had no plans to reconvene before the elections.

He has repeatedly asserted that Republicans are more committed than Democrats to protecting people with preexisting health conditions, despite numerous past actions contrary to that claim.

And he has asserted that the United States is the only country to grant automatic citizenship to children born on its territory, despite the fact that more than 30 other nations have a similar “birthright citizenship” policies.

And, in what sounded to us like an expert troll, Trump disputed media reports about the size of the migrant caravans heading toward the US’s southern border, asserting that “I’m pretty good at estimating crowd sizes.” This claim followed a question about Trump’s decision to send 15,000 troops to the border in anticipation of the caravans’ arrival, to which Trump said that, if we can’t have a proper border wall, then we should at least have “a wall of people.”

DONALD TRUMP: It’s very important. We have to have a wall of people –- very highly trained people, terrific, dedicated patriots. That’s what they are. You have caravans coming up that look a lot larger than it’s reported actually. I’m pretty good at estimating crowd size. And I’ll tell you they look a lot bigger than people would think. So we’ll find out. They had a very rough one just formed in El Salvador if you can believe it. And it was very nasty, you saw what took place. And you look at what’s coming up through Honduras through Mexico. And Mexico is helping us. But these are rough people in those crowds. And Mexico suffered a lot of damage in the last skirmish.

While on the subject of the caravan, ABC’s Karl asked Trump why he’s so keen to beef up border security when the crowds of people are mostly impoverished migrants who pose little, if any threat, to Americans. To this, Trump insisted that the crowd included “dangerous” members of MS-13 and once again characterized it as “an invasion.” Trump also insisted that “national security covers a lot of territory” when his interviewer tried to insist that the border troops wouldn’t be able to arrest migrants crossing the border.

Toward the end of the interview, Trump denied ABC’s claim that he wanted to get rid of the requirement that health insurers must cover preexisting conditions, saying instead that he wanted to replace it with something better. Democrats have been having a hard time, Trump said earlier in the interview, because “they haven’t been winning” before claiming that he would try his best to work with them if they did take back Congress.

DONALD TRUMP: “I want to replace pre-existing conditions and I’ve always been there. What the Democrats are going to do is destroy our entire health care and you’re not going to have any health care. You would destroy the country. You are not going to have health care,” he said. “The Democrats are going to literally — you’ll have to pay three times the taxes and they’ll destroy health care as we know it in this country. You won’t have pre-existing conditions. You wont have anything.”

He ended the interview again criticizing Paul Ryan for standing up for birthright citizenship. “The Supreme Court should take care of that” Trump said, referring to any legal obstacles to throwing out the privilege.

Of course, President Trump isn’t the first politician to justify being less than truthful at times when the public welfare is at stake. Jean Claude Juncker, the president of the European Commission, said back in 2014 that sometimes compromises are necessary to achieve political results – and sometimes, to accomplish this, these actions must be hidden from public scrutiny (like, for example, when you’re pushing for the creation of the eurozone), according to the Telegraph.

“When it becomes serious, you have to lie,” he said.

Watch select clips from the interview below:

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Authored by Mike Brest via The Daily Caller,

Florida Democratic gubernatorial candidate Andrew Gillum is the latest to be stung by a Project Veritas undercover video. A video released on Thursday shows a campaign staffer they identify as Omar Smith using a racial slur and saying the candidate makes promises he knows he can’t keep.

“It’s a cracker state,” Smith stated.

“Get it? Ask anybody outside of here. You go Port St. Lucie, Orlando … man them crackers ain’t gonna let us do that sh*t dawg. Boy, you crazy?”

He went on, saying, “Gillum is a progressive. He is a part of the crazy, crazy, crazies.”

Then the undercover reporter asked how Gillum plans to pay for many of his campaign promises, Smith said he couldn’t.

“That’s not for them to know … That’s not for [the voters] to know. Remember our saying, modern-day fairy tales start with ‘once I am elected.’”

Gillum is in a very tight race against Republican Rep. Ron DeSantis. According to an Ipsos Public Affairs poll released on Tuesday, Gillum is up six points.

President Donald Trump has waded into this race calling Gillum “a thief,” because the Tallahassee mayor has reportedly been under investigation by the FBI.

Project Veritas has also recently released videos on midterm election candidates Phil Bredesen and Sen. Claire McCaskill. The Daily Caller was unable to independently verify the video.

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Last we checked in with former Goldman Sachs SE Asia chairman Tim Leissner, the banker was nearing the nadir of a dramatic fall from grace that resulted in him being terminated from the bank, as it sought to distance itself from a series of shady bond underwritings organized by Leissner. The bank, as has been widely reported in the media, was deeply involved with the Malaysian government’s efforts to seed the 1MDB development fund, which, as we now know thanks to the DOJ, was used by former Malaysian President Najib Razak as his own personal slush fund, with most of the money going to purchase luxury yachts, paints – and some of the money was even used to help finance the Hollywood blockbuster “The Wolf of Wall Street”. In total, Razak and his cronies are believed to have stolen nearly $700 million.

Back in July, it was believed that Leissner was planning to cooperate with federal authorities, raising the possibility that he could help expose some of the endemically corrupt practices happening behind the scenes at the Vampire Squid. Since WSJ exposed the fraud back in 2015 after 1MDB missed bond payments, the scandal has riveted the financial press and drawn intense scrutiny from the DOJ, with AG Jeff Sessions calling it “kleptocracy at its worst.”

And now it appears Leissner has done just that. As the Wall Street Journal reported Thursday morning, the former banker is expected to plead guilty to conspiracy to launder money and violate the FCPA. As part of the settlement, he has agreed to a $44 million fine for his role in the scandal – a guilty plea that, we imagine, will lead to his eventual cooperation.

But while Leissner’s situation is hardly ideal, his former deputy has it even worse. Roger Ng, the former deputy director of Goldman’s SE Asia practice, is expected to be indicted by the DOJ, alongside Jho Low, the Malaysian financier whose exploits have been widely chronicled in the Western media. Low allegedly masterminded the 1MDB fraud. Last week, Razak and his former Treasury secretary were charged with criminal breach of trust, months after Razak was imprisoned shortly after losing his reelection race to a rival who had promised to prosecute him.

As the DOJ prepares its announcement, attention will now turn to what, exactly, Leissner told investigators and whether his former employer could be held liable.

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With Trump getting increasingly more vocal, and critical about the Fed’s rate hikes in recent weeks, on Wednesday morning the president’s top economic advisor and former CNBC anchor Larry Kudlow, speaking at the Washington Post State of Small Business conference said that President Trump has not made the phone call “yet” to Fed Chair Powell to complain about rising rates.

Kudlow also said that Trump hasn’t been seeking to replace Powell, adding that Trump is not disrupting the Fed’s independence and that the Fed and Trump share a similar goal of “non-inflationary growth.”

Speaking at the same conference, Kudlow said that Trump’s meeting with China President Xi Jinping later this month would be formal and might include a meal; the hope is that the leaders might break the “logjam” between the countries although “nothing is set in stone on China tariffs.”

Kudlow also said that Trump will “aggressively” pursue his agenda against China if no deal reached on intellectual property theft, cybersecurity and tariffs on commodities, among other issues. Curiously, Kudlow’s preview of the speech came just moments before Trump tweeted that he had a “long and very good conversation with President Xi Jinping of China” during which the “emphasis was on Trade” with Trump adding that “those discussions are moving along nicely.”

Trump’s tweet sparked a sharp reversal in the market, with the Dow now up over 200 points, after turning briefly red after today’s disappointing manufacturing ISM survey.

Kudlow said that Trump has no plans to change “large” entitlement programs, and warned that “if Democrats take the House in midterm elections and seek higher taxes, Trump would veto such increases.”

Finally, Trump’s advisor said he would oppose any deal that would raise the federal minimum wage. “My view is no. My view is a federal minimum wage is a terrible idea, and will damage, in particular, small businesses,” he said when asked about the prospect at the Washington Post conference.

Kudlow said he opposed the federal minimum wage because state and local economies were so varied, and a one-size-fits all approach would not work, but he also said that he opposed minimum wages at the state and local level.  He argued that the best way to help ordinary workers was to cut corporate taxes. Workers wages have remained largely stagnant in recent years, though monthly wage data spiked in the last quarter according to new government data.

Democrats have pushed for increasing the federal minimum wage to as much as $15 an hour, over double its current rate of $7.25.

Watch the Kudlow interview below

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Moments after stocks stumbled after the latest disappointing, and rather stagflationary Manufacturing ISM print, the S&P spiked higher following a Trump tweet in which the president said he just had a “very good” conversation with Chinese’ president Xi, in which the emphasis was on trade and added that “discussions are moving along nicely.”

Just had a long and very good conversation with President Xi Jinping of China. We talked about many subjects, with a heavy emphasis on Trade. Those discussions are moving along nicely with meetings being scheduled at the G-20 in Argentina. Also had good discussion on North Korea!

— Donald J. Trump (@realDonaldTrump) November 1, 2018

The optimistic tweet reversed much of the early morning pessimism, which had nearly brought the Dow to the unchanged line, and sent the Dow Jones to session highs, up as much as 150 points, as sentiment once again shifts on trade, this time with markets now expecting a favorable outcome from the G-20 meeting between the two presidents.

The Chinese Yuan also spiked to session highs following Trump’s tweet:

Ironically, the news comes at the very same time that AG Jeff Sessions is said to announce a new initiative in response to China’s economic espionage, according to a U.S. official. The Initiative will be led by agency’s National Security Division Head John Demers and will increase the use of DOJ tools to counter China’s activities.

According to Bloomberg, Sessions is ordering the FBI and NSD to step up enforcement, and DOJ will select five U.S. attorneys to be part of the initiative. The announcement will be coupled with unsealing today of a criminal case by the U.S. Attorney for the Northern District of California that involves a Chinese co. that stole trade secrets from a U.S. company.

However, as shown above, stocks are ignoring the DOJ news and focusing solely on Trump’s tweet as the market’s bipolar nature once again emerges to the surface.

 

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Despite drastically tightening financial conditions, ‘soft’ survey data on US Manufacturing was expected to rise in October, but – as always – it was mixed:

• Markit’s Manufacturing PMI printed higher at 55.7 (marginally higher than September’s 55.6 but below the October flash print of 55.9)

• ISM Manufacturing Printed dramatically lower at 57.7 (well below expectations of 59.0 and down from September’s 59.8)

It appears ISM is catching down to reality as ‘hard’ economic data continues to creep lower and disappoint:

ISM Manufacturing is at its weakest since April 2018 (as new orders drop to lowest since April 2017)

While Markit’s Prices Paid index is soaring, ISM’s has been falling recently but prices bounced in October as Export Orders collapsed to weakest since Nov 2016…

So while ISM is a terribly dismal print, Markit is ebullient…

Chris Williamson, Chief Business Economist at IHS Markit said:

“The manufacturing sector saw a strong start to the closing quarter of 2018, with new order inflows rising sharply and business optimism spiking higher in an encouraging sign that firms expect the good times to continue into 2019.

“The increasingly bullish mood was also reflected in one of the largest monthly increases in factory payroll numbers seen over the past seven years as firms grew capacity to meet rising workloads.

“The key area of concern remained tariffs, which were widely reported to have contributed to another month of stalled export sales and a steep rise in prices for many inputs. Average input prices rose at one of the sharpest rates seen over the past six years in October.

“In a clear sign that inflationary pressures are continuing to build, strong customer demand meant firms were often able to push cost increases through to selling prices.

Average prices charged for goods leaving the factory gate consequently jumped to one of the greatest extents seen since mid-2011.”

We suspect ISM is right on this one!!

When does the soft survey data catch down to tightening financial conditions?

Or the ‘hard’ economic data?

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Authored by Jesse Colombo via RealInvestmentAdvice.com,

The Dow was up 241 points yesterday and the Bubble Heads already think it’s “back to the races again.” I’m still cautioning “not so fast!,” however. Nothing has changed technically since last week’s major technical breakdown that caused the bellwether S&P 500 to close below a very important uptrend line that started in early-2016. The “Godfather” of chart analysis Ralph Acampora feels the same way as me and said that the “damage done to the stock market is much, much worse” than anyone is talking about.

According to the chart below, the S&P 500 is still below its uptrend line, which means that the breakdown is still intact. The uptrend line is now an overhead resistance level. All of the movement that occurs between this line and the 2,550 to 2,600 support zone (the early-2018 lows) is basically randomness or “noise,” not “signal.” The S&P 500 would need to break back above its former uptrend line in a convincing manner in order to negate the breakdown. As I’ve been saying, the S&P 500 is likely to continue testing its 2,550 to 2,600 support zone before its able to stage a decent bounce. If the index closes below this zone, it would likely signal further declines ahead.

Despite the bounce of the past two days, the Nasdaq Composite index is still below its uptrend line that it broke last week, which means that the breakdown is still intact:

As I explained yesterday, I am watching if a bearish head and shoulders pattern is forming in the S&P 500 and other major U.S. stock indices. If we are actually following this pattern, the left shoulder was the late-2017 surge and early-2018 plunge, the head was the summer surge and October plunge, the S&P 500 would have further to drop in order to test its neckline, and a final “dead cat bounce” would be ahead as the right shoulder forms. 

I am not predicting or guaranteeing that the market is forming a head and shoulders topping pattern. I am simply curious to see if we are forming this pattern, so I am taking a “wait and see” approach. Importantly, technical analysis is not a guarantee of future outcomes. It is the analysis of previous price trends in order to apply probabilities to our portfolio management. What this analysis clearly suggests is an environment of mounting risks in the markets which our entire portfolio management team at Real Investment Advice and Clarity Financial have been keenly focused on.

As portfolio managers, we are aware of the damage sudden and unexpected downdrafts in markets can have on invested capital. Our team produces commentary each week which discusses the near term trends of the market and how we are navigating the increasingly dangerous waters of an overvalued, late cycle, bull market. If you tired of being told to just “ride it out,” and are concerned about growing your wealth, and protecting your financial future, click here to ask me a question to find out more.

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After two days of torrid moves higher in the market – a two-day rally into month end of +2.67% which was the biggest since February and the third biggest since June 2016 – and one which appears set to continue today, some are wondering if there is an unknown source of short-gamma who is “forced” to chase stocks higher – i.e., a short who is forced to cover exposure, and caught in a “negative convexity” trap, is pushing the market sharply higher – Nomura’s Charlie McElligott confirms that the US stock market continues to trade “like there’s an implicit & incremental source of “short gamma” in the market” and suggests that said “short gamma” would likely be contained within the “fundamental” universe (both hedge and mutual funds), who are not actually short option delta but are increasingly likely to act as “forced buyers” the higher stocks rise.

The rip higher is taking place after last month’s 1) “mass de-gross/cutting of nets” and 2) enormous reduction of “market” factor risk exposure which crippled relative hedge fund exposure, especially among long/short equity funds (here, McElligott observes that “Beta” market-neutral was -10.9% in Oct despite including yday’s +2.9% rally — the sixth worst month for the factor since 2010 — as crowded portfolio positioning “long high beta / short low beta” was liquidated).

Framing the dynamic in terms of a “gamma short” or continued “forced” chasing is important, as many doubt the ability for funds to “play offense” following the extreme performance-pain suffered over the past few months; however, as the Nomura strategist writes they are de facto “getting short-er” the higher the market moves in their absence – thus to McElligott, they are “dynamically hedging” with spastic trading in Spooz (as opposed to options due to their “richness” right now).

Meanwhile, the systematic funds have already jumped on board, and according to Nomura calculations the equity “gap higher” (S&P minis +4.8% since Monday night’s low-tick) has forced incremental Systematic fund releveraging as well in U.S. Equities: as a result, the Nomura Trend CTA model shows SPX positioning now “+60% Long” from “+31% Long” two days ago; Russell to “+60% Long” from “-100% Max Short” last week; and Nasdaq to “+60% Long” from just “+31% Long” yesterday.

This would also suggest that if stocks again reverse direction lower, the now familiar late day selling burst which is largely the result of quant deleveraging, could once again result in near record low TICK prints, and send the market tumbling once more.

Meanwhile, the macro sentiment appears to be shifting to bullish again, as per the following observations from the Nomura cross-asset strategist:

• With ISM, PMIs and tomorrow’s NFP (with some estimates now higher post the ADP leap), we have further macro potential for resumption of status-quo “bearish USTs / bullish Equities” to reverse October pain for this consensual view, as it was the best 1m performance of the Bloomberg Barclays U.S. Treasury Index relative to S&P 500 Total Return since January 2016
• Between the better data and the U.S. Equities relief, STIRs are again re-pricing as the Fed gains “breathing room” to maintain normalization: EDZ8Z9 is at 46bps of hikes in ’19, and EDZ9Z0 is now again positive, i.e. NO longer implying a modest Fed easing in 2020
• Another risk-asset catalyst: the first day of the new month sees the U.S. Dollar suffering its worst day in over three weeks despite weaker Asian Manu PMIs (confirmed ‘trade war’ bleed), as the rest of G10 explodes higher on idiosyncratic drivers (GBP and EUR higher on “reported” Brexit deal with EU on financial services industry; Antipodeans on stronger Aussie trade surplus data) with EM and Metals bouncing as well
• More Chinese stimulus planned to help spur domestic consumption, with Vice Premier Zou Jiayi saying the country is planning more tax cuts, with too we are seeing a report from Reuters stating that the PBoC held a meeting with commercial banks on Wednesday to “encourage” issuance of bonds to provide additional sources of liquidity for corporates

Of course, a reversal in the recent negative macro data is ultimately bearish for risk assets – it will reinforce Powell’s thinking that the neutral rate is well higher, and needs an overshoot.

The irony is that with the “data-driven” Fed having a lot of new info to digest over the next few days, even as U.S. financial conditions are “tightening” further at this moment, McElligott concludes that “markets show an asymmetric bias to “good data” perversely sowing the seeds for our next inevitable risk-asset tantrum, especially with the “QT impulse” accelerating again following yesterday’s big SOMA run-off and the upcoming on Nov 21st.“

In this regard, a big “tell” will be the ISM Manufacturing Index, which has historically been highly correlated with US financial conditions. After the near record prints in recent months, one can argue that a sharp move lower is now inevitable.

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October was a rocky month for stocks and banking shares were no exception, with analysts pointing out that shares crashed hard, mimicking a pattern that surfaced in the immediate run-up to the financial collapse ten years ago.

And as the banking sector emerged as one of the worst performers during a brutal month, as they often do, Deutsche Bank shares stood out as one of the worst performers as shares tumbled to all-time lows for the first time in roughly two years following a disappointing earnings report, reigniting perennial fears that the bank would need to be broken up or bailed out, even as rumors about a possible merger with Commerzbank continued to circulate. Making a bad situation that much worse, what was formerly one of the bank’s largest shareholder, Chinese conglomerate HNA, has been dumping its shares amid a spate of government-ordered deleveraging. 

But as HNA dumped, it appears another institutional investor has stepped up to take the other side of the trade, sensing that, under a layer of dysfunctional management, there is hidden value there, particularly in DB’s retail and trade-finance operations. As the Wall Street Journal reported, Hudson Executive Capital LP, led by former JP Morgan Chase & Co. finance chief Douglas Braunstein, has taken a 3% stake in the German lender – effectively taking the other side of the trade from HNA – cementing the activist fund’s status as a top-five shareholder.

Braunstein told WSJ that his trust in DB’s turnaround plan stems from his confidence in the bank’s new chief executive, Christian Sewing, a longtime employee who was brought in to replace John Cryan earlier this year. Since Sewing has taken over, the bank has failed a Federal Reserve stress test and paid a more than $500 million fine over its involvement in a $10 billion Russian money laundering scandal. But that hasn’t dampened investors’ hopes that the bank’s turnaround man du jour might finally be able to produce some tangible results. As he told WSJ, the activist investor believes DB is taking “the right steps” to facilitate the badly needed turnaround.

Hudson Executive Capital LP, led by former JPMorgan Chase & Co. finance chief Douglas Braunstein, said it has built about a 3.1% stake in Deutsche Bank common shares.

The investment, Hudson’s biggest so far, was made in recent months as Deutsche Bank shares plumbed all-time lows. The roughly $620 million stake makes Hudson a top-five shareholder, and the first new one of size since the bank’s latest restructuring and CEO change in April.

In an interview, Mr. Braunstein called Deutsche Bank “misunderstood and undervalued,” a conclusion he drew during almost a year of talking to current and former executives and other finance contacts. His initial impression in late 2017 was that the management team at the time was “as dysfunctional as you could basically find.” Current executives seem unified in efforts to cut costs and boost revenues, he said.

In Braunstein’s estimation, Sewing, who is refocusing the bank on its European roots, is “the man for the job.”

He called transaction banking a “crown-jewel asset” that helps provide affordable funding, easing one of the lender’s big problems – its higher-than-average funding costs.

Mr. Sewing, a career Deutsche Bank employee who became CEO when the supervisory board fired his predecessor, has said he is refocusing on the lender’s roots serving European companies and making its German retail banking more efficient. He wants it to be less dependent on trading businesses that historically have driven profits but have become more volatile.

Mr. Braunstein praised Mr. Sewing. “We would not have made the investment but for the fact that we think he’s the right guy for the job,” Mr. Braunstein said.

The fact that DB has hired Cerberus Capital to help guide the turnaround helped cement Braunstein’s confidence.

He added that a move by private-equity firm Cerberus Capital Management LP and its president, Matt Zames, to formally advise Deutsche Bank on cost-cutting and operational challenges was “a very significant positive.” Cerberus in November 2017 disclosed a roughly 3% position in the bank. Earlier this year, in an unorthodox move, Cerberus also became a paid adviser to Deutsche Bank. Messrs. Braunstein and Zames had worked together closely in senior JPMorgan roles. Mr. Zames was JPMorgan’s chief operating officer before leaving the bank last year.

The activist taking a share in a major investment bank isn’t without precedent. Some might remember that analysts, including CLSA’s Mike Mayo, praised ValueAct for its decision to take a 2% “activist” stake in Morgan Stanley two years ago, with Mayo proclaiming that this level of accountability was “what the banking sector needs.” He went on to explain that while Morgan Stanley has “an excellent franchise,” its “execution has fallen short.”

For his part, Sewing praised Braunstein and and thanked him for the vote of confidence. “We appreciate Hudson Executive’s confidence in our ability to execute on our strategic objectives,” Deutsche Bank CEO Christian Sewing says in e-mailed statement.

For Deutsche Bank, the first statement doesn’t really apply – the German lending giant is still struggling to shake off the trappings of the financial crisis – while the second is an exercise in understatement. Amid legal settlements related to DBs reckless sales of toxic mortgage-backed securities, massive unchecked derivatives exposure and floundering trading and investment banking businesses, Deutsche is a shambles. 

And while Braunstein’s confidence in Sewing might be a comfort to board members by affirming that, for now at least, it appears they have bet on a horse with real potential, Sewing wouldn’t be the first DB CEO in recent years who was heralded as a savior, only to leave the job exhausted and defeated. But, then again, if he could demonstrate even a minor improvement in earnings and fiscal accountability, there’s definitely a lot of upside baked into DB’s shares.

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